Rates Improve Slightly On Instability in Emerging Markets.
January employment data didn’t disappoint in terms of the consensus versus the reality; as we always remind ahead of the monthly report, it generally never comes near the forecasts. January no exception; consensus estimates for non-farm jobs were for an increase of 180K, as reported job growth was +113K and almost more interesting is that the very weak Dec job growth (+74K), we expected the number would be revised higher, not the case Dec was revised up just 1K to 75K. Private jobs in Jan were also weaker than forecasts, up 142K against forecasts and estimates of 180K, and Dec was revised to just 89K. The unemployment rate did fall to 6.6% frm 6.7%. The knee jerk, always a condition on employment reports took the stock indexes lower for about three minutes then indexes reversed and improved; the 10 yr note yield fell to 2.63% frm 2.70% and MBS prices swung in wide ranges before settling in at 2.68% . Factory payrolls increased by 21,000, following an 8,000 increase in the previous month, construction workers +48K, private sector service jobs +66K, retailers cut jobs by 13K. By 9:00 the stock market was pointing to a better open at 9:30.
Why the reversal in weaker headlines? It is due to the benchmark revisions BLS reported along with the monthly report; and the momentary thought that the weak current data will keep the Fed on hold for additional tapering. The annual benchmark revisions which aligned employment data spanning from April 2012 to March 2013 with corporate tax records showed that payrolls were better by an additional 347K jobs as workers providing services for the elderly and those with disabilities were reclassified to a category now captured in the establishment survey for the unemployment rate.
The first Friday of each month should be named Volatility Day, might even be a holiday so investors and traders can take the time to evaluate the always uncertain employment report. It is extremely rare that BLS data comes anywhere close to what economists estimate. The take away is, trying to accurately estimate job growth is fruitless, even BLS can’t get it right; impossible to accurately calculate job changes in the short time frame BLS or ADP has to come up with data that isn’t flawed in some sense.
At 9:30 the DJIA opened better, up 35, NASDAQ +23, S&P +8. 10 yr note unchanged at 2.70% after falling to 2.63% on the initial employment headlines.
Treasuries and MBSs are a little better, so too is the stock market this morning so far. The employment report provided something for everyone for the moment. When traders dove deeper into the meaning of the data the initial reaction is that employment isn’t as bad as the headlines would suggest. The household survey that establishes unemployment was better (6.6% frm 6.7%), the labor participation rate up to 63% frm 62.5% and even though weaker there were new jobs created overall, private jobs did increase 142K. The data this morning is more confusing than it normally is on the wild data, but regardless of what anyone thinks it is critical to go with the markets themselves. The stock market so far is volatile, the DJIA started up 35, increased to +85 and now +21 . The 10 yr and MBSs holding well so far.
The economic outlook remains in limbo from the perspective of recent data; some strong, some weaker. The economy isn’t growing rapidly but equally not slipping much. The weather factor remains an issue but is evenly divided in terms of its impact; some saying it has had little impact while others see it has a factor in slowing growth, at least temporarily. Market uncertainty is always a byproduct of employment data, best to focus more on market movement today rather than trying to make assessments on what the data actually reflected. Always pay more attention to what traders and investors are actually doing rather than all the talking heads and media thoughts.
PRICES @ 10:10 AM
10 yr note: +7/32 (22 bp) 2.68% -2 bp
5 yr note: +8/32 (25 bp) 1.47% -5 bp
2 Yr note: +2/32 (6 bp) 0.30% -3 bp
30 yr bond: +4/32 (12 bp) 3.66% -0.5%
Libor Rates: 1 mo 0.156%; 3 mo 0.236%; 6 mo 0.333%; 1 yr 0.557%
30 yr FNMA 3.5 Feb: @9:30 101.45 +18 bp (+19 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Feb: @9:30 103.29 +12 bp (+19 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Feb: @9:30 102.78 +13 bp (+29 bp frm 9:30 yesterday)
More next week, have a great weekend!
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